CFO Outside Directorship and Financial Misstatements

I study an important accounting consequence—financial misstatements—of CFO outside board membership. I find that firms with CFOs holding outside directorships have a lower likelihood of misstatements. These results likely reflect the benefits accruing to CFOs' home firms in terms of improved fi...

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Bibliographic Details
Published in:Accounting horizons 2019-12, Vol.33 (4), p.59-75
Main Author: Khan, Sarfraz
Format: Article
Language:English
Subjects:
Accounting
Chief financial officers
Companies
Counseling
Embeddedness
Financial reporting
Leadership
Outside directors
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Summary:I study an important accounting consequence—financial misstatements—of CFO outside board membership. I find that firms with CFOs holding outside directorships have a lower likelihood of misstatements. These results likely reflect the benefits accruing to CFOs' home firms in terms of improved financial reporting quality. These findings are based on several methods that control for unobserved factors that may affect both incidence of CFO outside directorships and a firm's financial misstatements. I also provide some preliminary insights into CFO and home firm characteristics that determine CFO outside board directorships. My findings are consistent with the inter-organizational embeddedness perspective, suggesting that inter-firm networks provide sources for counseling and learning opportunities, which executives can use to improve their home firms' performance. JEL Classifications: M41.
ISSN:0888-7993
1558-7975
DOI:10.2308/acch-52465